GST Notice Of Rs. 21,000-Cr Against Gameskraft :- Karnataka HC

The Karnataka High Court’s ruling on May 11 has dismissed a significant GST tax notice levied against Bengaluru-based online gaming company, Gameskraft Technology, over alleged tax evasion worth Rs 21,000 crore. 

This verdict is expected to have far-reaching implications for the Indian skill-gaming sector, which has been awaiting clarity on GST regulations. The tax authorities are expected to appeal to the Supreme Court. The notice, which represents the largest of its kind in the history of indirect taxation, accused Gameskraft Technology of evading taxes worth Rs 21,000 crore. 

This ruling has the potential to significantly impact the Indian skill-gaming industry, which has been eagerly waiting for guidance on GST regulations. In September 2022, a GST intelligence unit issued a show-cause notice to Gameskraft Technology, alleging that the company had failed to pay GST worth Rs 21,000 crore over the period from 2017 to June 30, 2022.

The Karnataka High Court rejected allegations of goods and services tax fraud against Gameskraft Technology, an online gaming company based in Bengaluru, on May 11. This decision could potentially affect the Indian skill gaming market, which has been anticipating clarity on GST policies. It is anticipated that the Tax Authority may escalate the matter to the Supreme Court. The company had been accused of evading taxes worth Rs 21,000 crore, which was the most substantial instance of indirect taxation in history.

According to reports, GST inspectors have levied a tax of 28% on bets worth approximately Rs 77,000 crore. Investigations revealed that GTPL was allowing its players to engage in betting by placing money stakes on the final outcome of card games played online. On the other hand, Gameskraft was found to be non-compliant with customer billing requirements. Officials discovered that the gambling platform submitted falsified or retroactive invoices after conducting a forensic audit of its records.

Furthermore, the company was allegedly coercing its clients to place bets since refunds were impossible after deposits had been made to their wallets. This development occurred at a crucial time as the GST Council was expected to deliberate on the GST framework for online gambling, casinos, and horse racing in its upcoming meeting. Moreover, the government had recently announced new regulations governing internet gaming.

For over three years, the GST Council has been grappling with the issue of whether online gambling should be subject to taxation. The company in question argues that the government has made an error in taxing gaming at the 28% level. The Bengaluru-based firm maintains that its services fall under the category of skill-based gaming activities, which are subject to a lower GST rate of 18% on the platform cost.

This cost is deducted from the players’ entry fees and typically ranges from 5% to 15% of the registration fee, with the remaining amount going towards the prize pool for players. Following the High Court’s ruling, Joyjyoti Misra, the group’s general counsel, expressed satisfaction with the decision, stating that it is a strong affirmation of their business strategy. The company has always placed complete faith in the legislative and judicial branches of government. The group remains optimistic that the ruling will pave the way for constructive talks with GST authorities and serve as a basis for progressive and industry-specific GST legislation.

In a recent post on LinkedIn, Roland Lander, the CEO of the All India Gaming Federation, expressed his thoughts on a significant judgement made by the Karnataka High Court. He emphasized that this ruling would be a game-changer for gaming entrepreneurs across India, as it would pave the way for the sector’s growth and development. Lander believes that this decision will undoubtedly have a positive impact on the industry’s future prospects, and he hopes to see gaming flourish in the coming years. 

According to Sudipta Bhattacharjee, an indirect tax partner at Khaitan & Co, the GST government officials in India made an attempt to impose GST on the entire online skill-gaming sector. However, this move was only meant for businesses engaged in “betting and gambling.” This decision was made without considering the legally recognised distinction between “games of skill” and “games of chance.” Bhattacharjee’s colleague Onkar Sharma, who provided legal counsel to the petitioner in this matter, shares this view.

Bhattacharjee believes that this attempt by the GST government officials could have had far-reaching consequences for the online skill-gaming sector in India. However, the Karnataka High Court’s recent judgement has provided some relief to entrepreneurs in this industry, and has upheld the distinction between “games of skill” and “games of chance.” This ruling will undoubtedly help to boost the sector’s growth and expansion and provide a much-needed impetus to gaming entrepreneurs across the country.

It is heartening to note that the legal precedent, which has stood for over six decades, stating that games of skill are not tantamount to “betting and gambling,” even when there are stakes involved, remains unchanged. Sameer Chugh, the Chief Legal Officer at Games24x7, maintains that reputable online skill gaming platforms have joined hands as an industry to devise robust and ethical self-regulatory mechanisms and have been transparent in their commitment to running fully compliant operations in adherence to local regulations.

He further asserted that the legal precedent established in this matter would undoubtedly shape future discussions on financial and taxation matters pertaining to the skill gaming industry, instilling confidence among stakeholders.

Proofread, Edited & Published By Naveenika Chauhan